What Is Non-Fungible Token (NFT) and What Is Not?

Non-Fungible Token (NFT), which we have heard about more often since the beginning of 2021, is a digital asset that uses blockchain technology and primarily operates within Ethereum. NFT is a digital token that cannot be exchanged or replaced and may represent many tangible objects in the real world, such as songs, artworks, GIFs, virtual game items, videos, and cartoons. NFT is technically not the work itself, whereas it is a metadata file that contains the unique combination of Token ID and contract address.

NFT is preferred, especially in the art community, because it functions as a digital certificate/registry through blockchain technology, thus providing transaction security and allowing transactions to be carried out quickly and without any central authority in the digital environment. NFT also has a structure that can help prove ownership of the work, allows the author to reach a broad audience and help them overcome the physical borders/restrictions. Furthermore, this new format/media increases authors’ opportunities for higher incomes than usual. In addition, thanks to the structure of its smart contracts, it also offers the authors an opportunity to transfer a share of each subsequent sale of the relevant NFT at the rate determined in the contract.

On the other hand, NFT purchasers mostly want to have a unique digital asset with a collector’s mind and use it as an investment tool.

It should be noted that, in principle, NFT sales do not include the transfer of copyright on the work converted into NFT. It only provides the right to use the relevant NFT format. However, if the right owner who created the NFT wishes can include the transfer of rights arising from the ownership of the work within the scope of the smart contract, provided that the relevant formal conditions are met.

Another issue that needs to be evaluated regarding NFT and copyright law is whether the conversion of work to NFT violates the rights arising from authorship. The right to create the NFT should belong to the author of the digital work. However, anyone with sufficient technical knowledge and access can create and sell NFTs. Therefore, a person who does not have any ownership rights on that work can convert the digital work into NFT and offer for sale.

 In this case, although it is a subject of debate in the doctrine, it is generally considered that the reproduction, adaptation and communication of the public rights of the author are violated. When the disputes[1] seen in the courts worldwide and reflected in the media are considered, these disputes are generally based on the claim that NFTs were created and offered for sale by people who are not actual rights holders. This situation indicates that many issues, such as whether the transaction includes the transfer of copyrights, whether the work is original or whether the actual right owner sells the work, should be questioned by NFT purchasers.

Another matter of discussion is which law will be applied in disputes related to NFT. There are opinions stating that NFT has been a unique and independent asset since its creation. Moreover, different regulations should be made in this direction.[2] On the other hand, there are also opinions supporting that NFT is not an independent asset. It functions like a digital certificate representing an asset. [3] Therefore, general rules should be applied here as well, and since the NFT represents an asset, the regulations that apply to this asset should also apply to NFTs. [4]

Our country has no regulation or court decision dealing with NFT and copyright law yet. At this point, it is clear that it would be beneficial to introduce comprehensive fundamental regulations for digital property rights to prevent loss of rights in the transactions of these digital assets. In the current situation, due to the lack of such regulations, it would be beneficial to indicate NFT individually as a format and to determine the scope of transfer and authorisation in this matter separately in the contracts and legal transactions to prevent possible conflicts which are subject to the rights arising from the ownership of the work.

[1] For example ROC-A-FELLA RECORDS, INC. vs Damon Dash Case 1:21-cv-05411-JPC and
 Quantin Tarantino vs Miramax Films “Pulp Fiction” dispute
[2] Guadamuz "The Treachery of Images: Non-fungible tokens and copyright.” Page 19
[3] https://haerting.de/en/insights/nfts-non-fungible-tokens-explaining-the-hype-from-a-legal-perspective/
[4] Pınar Çağlayan Aksoy, Zehra Özkan Üner, NFTs and copyright: challenges and opportunities, Journal of Intellectual Property Law & Practice, Volume 16, Issue 10, October 2021, Pages 3-4

Find more insights